BILL ANALYSIS Ó
SB 1216
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Date of Hearing: August 3, 2016
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Lorena Gonzalez, Chair
SB 1216
(Hueso) - As Amended June 29, 2016
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|Policy |Revenue and Taxation |Vote:|9 - 0 |
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Urgency: No State Mandated Local Program: NoReimbursable: No
SUMMARY:
This bill establishes an income tax credit, under both the
Personal Income Tax (PIT) and the Corporation Tax (CT) laws, for
employers that hire certain young individuals who are
ex-offenders convicted of a felony, as defined. Specifically,
this bill:
1)Allows an income tax credit no larger than $15,000 for taxable
years beginning on or after January 1, 2017, and before
January 1, 2022, to a "qualified taxpayer" equal to 23.5% of
the "qualified wages" paid to a "qualified full-time
employee."
SB 1216
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2)Defines a "qualified full-time employee" as an ex-offender
between 18 and 25 years of age who completes a work readiness
program, receives a starting wage of at least 150% of the
minimum wage, and meets other specified requirements.
3)Defines a "qualified taxpayer" as a person or entity engaged
in trade or business within California, except those employers
who provide temporary services, are in the retail trade
services, are primarily engaged in services in casinos, casino
hotels, or drinking places, or are a sexually oriented
business.
4)Defines "qualified wages" as the portion of the wages paid
that exceed 150% of the minimum wage but does not exceed 350%
of the minimum wage. For employees working in a pilot area of
California's New Employment Credit Program, qualified wages
are the portion of wages that exceed $10 an hour but not more
than 350% the minimum wage.
5)Provides for the recapture of the credit if the employee is
terminated any time during the first 36 months after
commencing employment, except in certain circumstances, as
defined.
6)Requires the Franchise Tax Board (FTB) to provide a searchable
database of employer names, amounts of tax credit claimed, and
the number of jobs created for each taxable year.
FISCAL EFFECT:
1)One-time administrative costs to FTB of approximately $750,000
SB 1216
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to implement the proposed tax credit and ongoing
administrative costs of approximately $150,000 to maintain the
program and searchable database. (General Fund)
2)Annual revenue loss of $0.3 million, $1.0 million, and $1.7
million in 2016-17, 2017-18, and 2018-19, respectively.
(General Fund)
COMMENTS:
1)Purpose. According to the author, SB 1216 will help a fragile
and disadvantaged demographic group transition back into
society after incarceration by reducing barriers to
employment. The author's office notes that ex-offenders have a
difficult time reentering the labor market following their
incarceration because of social stigma and an erosion in
skills.
2)California's New Employment Credit Program. SB 1216 is
structured similarly to California's New Employment Tax
Credit. This hiring tax credit is available to employers for
additional hiring of employees in defined geographic areas
(DGAs) in California. This hiring credit is generally
available in the geographic areas covered by the former
enterprise zones.
The New Employment Credit is available for wages paid by
taxpayers to full-time employees, including ex-offenders
convicted of a felony, who perform at least 50% of their
activities in the designated areas. The credit percentages
are 35% per year, for five years, for wages between 150% and
350% of the minimum wage. For a qualified employee working in
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a pilot area, the applicable wages are those wages exceeding
$10 per hour, up to 350% of the minimum wage. Pilot areas are
areas within the DGA that have been designated by GO-Biz. Up
to five pilot areas may be designated for a period of four
calendar years.
Except for small businesses, certain employers otherwise
qualified for the New Employment Credit are prohibited from
receiving this credit. For example, excluded businesses
include those in temporary help services, food services,
drinking places (alcoholic beverges), casinos and casino
hotels, and sexually-oriented businesses.
3)What does SB 1216 do differently? Even though the New
Employment Tax Credit is available to employers who hire
ex-offenders and is potentially more generous to eligible
employers, SB 1216 is different in a number of important ways.
First, SB 1216 is not restricted to specific geographic
regions in California. Therefore, employers who are located in
areas that would make them ineligible to claim the existing
hiring credit would be able to receive his new hiring credit.
Moreover, unlike the existing program, employers do not have
to show a net increase in employment in order to receive the
credit. Therefore, otherwise eligible employers could receive
the credit if they simply hired a qualified ex-offender and
fired another employee.
4)Recent amendments. Recent policy committee amendments to SB
1216 addressed the issue of "double dipping." Prior to these
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amendments, an employer could deduct qualified wages as
business expenses as well as obtaining a tax credit for the
same wages. Additionally, the value of the credit was
increased from 20% to 23.5% to make the aforementioned change
revenue-neutral. Moreover, recent author amendments clarified
that a job training provider includes continuing education
courses or services that connect individuals to high school or
continuing education services.
Analysis Prepared by:Luke Reidenbach / APPR. / (916)
319-2081